The focus should not be entirely on tax savings. These strategies should be adopted only if they make sense in the context of your total financial picture.
Accelerating Income into 2014
Depending on your projected income for 2015, it may make sense to accelerate income into 2014 if you expect 2015 income to be significantly higher. Options for accelerating income include:
- Harvesting gains from your investment portfolio;
- If you own a traditional IRA or a SEP IRA, converting it into a Roth IRA and recognizing the conversion income this year;
- Taking IRA distributions this year rather than next year;
- Selling stocks or other assets with taxable gains this year;
- If you are self employed with receivables on hand, trying to get clients or customers to pay before year end; and
- Settling lawsuits or insurance claims that will generate income this year.
Deferring Income into 2015
There are also scenarios (for example, if you think that your income will decrease substantially next year) in which it might make sense to defer income into the 2015 tax year or later years. Some options for deferring income include:
- If you are due a year-end bonus, asking your employer to pay the bonus in January 2015;
- If you are considering selling assets that will generate a gain, postponing the sale until 2015;
- Delaying the exercise of any stock options you may have;
- If you are selling property, considering an installment sale;
- Consider parking investments in deferred annuities;
- Establishing an IRA, if you are within certain income requirements; and
- If your employer has a 401(k) plan, consider putting the maximum salary allowed into it before year end.
To be continued…